Puerto Rico officials expect the island’s economy will again contract in fiscal 2011, a reversal from earlier projections that gross domestic product would increase this year at a modest rate of 0.4%.
For fiscal 2012, GDP is projected to increase slightly, although only in a range from 0% to 1%, said Juan Carlos Batlle, president of the Government Development Bank for Puerto Rico. Fiscal 2012 begins July 1. The commonwealth has been in a recession since 2006.
“It’s going to be a very slight recovery,” Batlle told reporters Wednesday after Gov. Luis Fortuño spoke at a Municipal Forum of New York luncheon in Manhattan. “That will be the first positive growth that we’ve seen since 2006.”
Batlle said the Puerto Rico Planning Board, which calculates the island’s GDP, will officially release its latest fiscal 2012 projections within the next week. The GDB president said that instead of the positive 0.4% growth that the government anticipated for fiscal 2011, Puerto Rico’s economy will again tighten.
“It’s going to be slightly negative,” Batlle said.
The administration continues to move forward with its pension reform initiative. Fortuño, who will release his fiscal 2012 budget proposal in mid-April, said he will file pension legislation in the next few weeks. He expects to sign a bill into law by June 30.
“We have an agreement of what to do,” the pro-statehood governor told reporters after speaking to more than 200 municipal bond professionals. “It’s just that there are some legal matters that are being dealt with to be able to address the right things because we don’t want to go back and fix it again.”
He noted that this is the initial phase of an overall change to Puerto Rico’s retirement system.
“It will be phase one of a probably two- or three-phase process to fix it permanently,” Fortuño said.
Puerto Rico’s pension fund, which has a funding ratio of 9.8%, will dry up by fiscal 2019. The unfunded liability is $17 billion. Those costs are contained. Anyone hired after 2000 receives a defined contribution plan similar to a 401K plan.
During his speech, Fortuño highlighted his administration’s achievements since taking office in January 2009, including cutting Puerto Rico’s structural deficit to $1 billion from $3.3 billion, reducing spending and payroll expenses, implementing public-private-partnership legislation, and moving to natural gas and renewable energy sources rather than relying solely on oil.
Puerto Rico still faces fiscal challenges. Along with its weak pension fund, its January unemployment rate is 15.9%, according to the U.S. Bureau of Labor Statistics. Roughly 41% of families live below the poverty level and per-capita income is $10,056 compared to $27,041 in the U.S., according to the federal Census.
Still, an exit from its five-year recession is on the horizon and Puerto Rico holds higher credit ratings than two years ago. Shortly before taking office, governor-elect Fortuño and then-incoming GDB president Carlos Garcia persuaded rating agencies to give the new administration time to turn Puerto Rico’s finances around before dropping the credit rating to below investment grade.
“As many of you know, we have come a long, long way. We have delivered — and will continue to deliver — on the fiscal reconstruction plan Garcia presented to this forum almost two years ago. So we want to thank you and the entire investment community, both in Puerto Rico and stateside, for staying by our side and believing in our plan and in our ability to deliver on it.”
